Malaysia's Prime Minister Najib Razak at his ruling United Malays National Organization (UMNO) annual assembly at the Putra World Trade Centre in Kuala Lumpur, Malaysia, in a December 10, 2015. Photo: Reuters/Olivia Harris
Malaysia's Prime Minister Najib Razak at his ruling United Malays National Organization (UMNO) annual assembly at the Putra World Trade Centre in Kuala Lumpur, Malaysia, in a December 10, 2015. Photo: Reuters/Olivia Harris

As speculation mounts that Malaysia’s parliament could soon be dissolved to pave the way for elections, the findings of a government task force into foreign exchange losses at the national central bank could have seismic ramifications for a political opposition already in disarray.

A Royal Commission of Inquiry (RCI) was formed in July to investigate multi-billion-dollar losses suffered by Bank Negara Malaysia between 1991 and 1993 during the premiership of Mahathir Mohamad, who now spearheads the Pakatan Harapan (PH) opposition alliance against the long-ruling United Malays National Organization (UMNO) party and Barisan Nasional (BN) coalition he formerly led.

Following a nine-day hearing on foreign exchange losses now estimated to stand at 32.1 billion ringgit (US$10.2 billion), the commission recommended that Mahathir and jailed opposition leader Anwar Ibrahim, who served as finance minister from 1991 until 1998, be investigated for a criminal breach of trust.

The RCI’s findings have since been tabled at the country’s parliament but not yet been debated. Police have set up a special investigation team. The report recommends the pair be investigated under Sections 417 or 418 of the penal code, which carry maximum sentences of five and seven years respectively.

When they were young: Then Malaysian Prime Minister Mahathir Mohamad (R) and deputy Anwar Ibrahim (L) during the United Malays National Organization party’s 50th anniversary celebration in a 1996 file photo. Photo: AFP/Francis Silvan

While the outcome of the RCI remains to be seen, charges brought against either figure would be widely viewed as a politically motivated attempt to exact revenge on opponents of Prime Minister Najib Razak, whose tenure has been dotted with controversies involving massive graft and money-laundering allegations.

The inquiry concluded that the central bank had broken from its conventional practice of asset management by actively participating in foreign exchange trading for profits beginning in the late 1980s, in a policy change led by the late Bank Negara governor Jaffar Hussein. He took responsibility for the losses and resigned from his role in 1994. He died four years later.

Witnesses who testified before the commission claimed that Jaffar played down the true extent of losses or concealed them from the government. A figure of 5.7 billion ringgit (US$1.4 billion) had been often cited as the amount of losses suffered in the 1990s, based on an audit by then auditor general Ishak Tadin which appeared in Bank Negara’s 1993 annual report.

Former central bank governor Zeti Akhtar Aziz told the RCI that the suspect losses actually amounted to 32.1 billion ringgit (US$10.2 billion), representing some two-thirds of the central bank’s reserves at the time. Witness testimonies appeared to blame losses on lax rules and poor administrative oversight of the secretive trading.

Testimonies also claimed that millions of shares in utility companies Tenaga Nasional Bhd and Telekom Malaysia Bhd were discreetly transferred at par value and sold off to mitigate the central bank’s enormous losses. Questions remain over how much senior government and central bank officials knew of the losses.

Mahathir testified that he had believed the losses amounted to 5.7 billion ringgit (US$1.4 billion) as stated in the bank’s audited report, which was later presented to the Cabinet and tabled in the country’s parliament. He also pointed out that Jaffar had taken responsibility for the losses and as a result resigned as bank governor.

Former premier Mahathir Mohamad speaks during an anti-kleptocracy rally in Petaling Jaya, near Kuala Lumpur, October 14, 2017. Photo: Reuters/Lai Seng Sin

“As prime minister, I was never involved in Bank Negara’s administration and I believe that I was not permitted under the law to get involved in its policies and affairs,” Mahathir said in a prepared statement to the inquiry. Other testimonies, however, contradict the former premier’s claims.

Anwar admitted to knowing of the actual losses and insisted Mahathir was briefed on the trading activity and potential losses by a finance ministry official acting on his instructions. Clifford Francis Herbert, a former finance ministry secretary-general, also claimed he had previously briefed Mahathir on the extent of the losses.

RCI chairman Mohd Sidek Hassan, who is also chairman of state-owned oil and gas company Petronas, accused the jailed opposition leader at the hearing of hiding the true extent of losses from the cabinet when he reported the audited figure of 5.7 billion ringgit (US$1.4 billion) in 1993.

Speaking without a prepared statement, Anwar, who has been detained since 2015 on a five-year jail term after being found guilty of sodomy, said he was “duty-bound” to report the audited figure published by the central bank in 1993. “The cabinet was aware of the losses; if they didn’t know, then they were sleeping,” he told the panel.

Legal experts have questioned the lack of key witnesses and documents to support the commission’s call to investigate both men on grounds of criminal breach of trust.

Anwar’s lawyers, Gurdial Singh Nijar and R Sivarasa, accuse the commission of ignoring their client’s testimony and relying on “wrong facts” to conclude his dishonest or fraudulent intent to deceive the cabinet. Mahathir’s lawyer believes the RCI’s conclusions are based on materials that do not meet any legally acceptable level of credibility.

A construction worker in front of a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia, February 3, 2016. Photo: Reuters/Olivia Harris

The decision to charge both individuals ultimately lies with the public prosecutor, Attorney General Mohamed Apandi Ali, who previously cleared Najib of criminal charges and corruption related to the indebted 1Malaysia Development Berhad (1MDB) state fund. Najib has consistently denied any wrongdoing, despite the fact US$681 million of 1MDB funds were found in his personal bank account.

Najib has said the funds were a gift from the Saudi royal family, but critics believe the funds were siphoned and embezzled from 1MDB for personal and political purposes. The state fund’s dealings are currently being investigated in six countries, including neighboring Singapore, Switzerland and the US.

Najib, who has resisted calls for 1MDB to be similarly investigated in an RCI, appears little concerned by the bad optics of dredging up his opponents’ past scandals so close to a general election.

With a rebounding economy, Najib is perceived to be in a strong position ahead of new national polls as his own scandal has largely faded from public view and media coverage.

In his New Year’s message, Najib cast the investigation into the Mahathir-era foreign exchange losses as a response to past calls from opposition politician Lim Kit Siang, leader of the Democratic Action Party (DAP).

Democratic Action Party leader Lim Kit Siang speaks during a pre-election rally in Kelana Jaya, Selangor in a file photo. Photo: AFP/Mohd Rasfan 

Lim, now an ally to Mahathir and a leading member of the PH coalition, had called for an inquiry into the matter in 1993 and today finds himself in the awkward position of having to downplay his past opposition to the former premier who had once jailed him on internal security grounds.

“RCI is exhuming an elephant’s carcass from Mahathir’s era, but why are we missing the elephant in the room,” he wrote recently in an online column in reference to the 1MDB scandal.

Najib, who served in Mahathir’s cabinet from 1986 to 2003, had also initially rejected Lim’s proposal to investigate the losses in a 1993 cabinet meeting, according to Mahathir. But if the RCI recommends pursuing charges, a possibility in the politicized climate, Najib could use the charge to hobble or remove Mahathir in the lead-up to polls.

Even if resurrecting corruption allegations inevitably invites comparison with his own graft troubles, Najib stands to gain from the sense of equivalency if it further divides the opposition coalition and upsets the uneasy alliance of long-time political foes brought together loosely in opposition to his continued rule.